Much has been said of the recent 50-year housing loan offered by United Overseas Bank (UOB). Most commenters agree that such a loan is a niche product. Only a small group of potential buyers would benefit from such a loan; the majority of the buying public would be ill-advised to take up such loan, despite the relatively lower monthly repayments.

Courtesy of Renjith Krishnan & FreeDigitalPhotos.net

Others have pointed out that a longer tenor may artificially inflate a buyer’s spending power, as the lower monthly repayments give the illusion of affordability. This would then have the potential effect of causing property prices to rise further, as more people tried to purchase more expensive properties.

But the very fact that such a loan exists today doesn’t seem to have gotten much analysis. When the Housing and Development Board, or HDB, was first created in the 1970s, it only took a few years to fully repay a HDB flat, on a sole breadwinner’s salary. A private property would have taken slightly longer, maybe 5 to 10 years.

Fast forward to today, when 30-year loans have become the norm, with income from two wage earners instead of a sole breadwinner. Economic realities have created this road that we are now walking. Inflation, global markets, immigration and competition have all combined to create this present scenario. Will it then eventually lead to 50-year loans becoming a norm? Is this newly introduced loan a sign of things to come?

Well, one thing’s for sure. Someone in UOB felt that property prices in Singapore have reached the threshold where a 50-year loan might be a viable product. And that’s probably how we went from 10-year repayments to 30-year repayments as well. In a sense, the existence of this 50-year loan suggests that property prices are reaching levels where we must work well beyond retirement to pay them off! Even if this hasn’t happened across the board, it seems to be heading there, and toward a new era where 50-year loans become the norm. Either that, or the market will crash.

If this hasn’t set alarm bells ringing somewhere, it should. The implications of UOB introducing this 50-year loan lie well beyond just how much it will reduce your monthly repayment.

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